Interstate Online Poker Compacts: Harder Than It Sounds

As Internet poker moves along the state by state path, having enough players to sustain games is a top concern among both players and those entities offering games.

Interstate compacts are the oft-talked-about solution to the player liquidity woes of states with populations too low to sustain a strictly intrastate poker market.

With Delaware about to become the second state to go live with intrastate online poker, and with New Jersey only weeks away, the poker forums are all abuzz with anticipation that the three states that have passed legislation authorizing Internet poker will quickly move to compact together to form a single market.

Compacts will likely lag behind regulation

But such hopes are entirely premature, and perhaps even unrealistic. With the vast differences in approach taken by states to legislate Internet gaming, finding enough common ground to forge an agreement among these three will be difficult, at best.

“There is growing recognition amongst state lawmakers and regulators that Interstate agreements are a necessity,” according to John Pappas, Executive Director of the Poker Players Alliance.

“For both online poker and online casino games expanded player pools will result in a more consumer friendly experience, increase participation, create bigger payouts, result in more profits for operators and more revenue for states.”

But, he adds, “while the recognition is there, I still think we are a ways off from these agreements becoming reality.”

Divergent regulatory models could complicate liquidity sharing

While compacting among these three states faces obstacles, as other states move forward with legislation of their own, they are likely to follow the path of one of the three.

As David Rebuck, head of NJ’s Division of Gaming Enforcement, said in his interview with Marco Valerio, “other jurisdictions will be looking to make a determination of what model of Internet gaming they might be interested in pursuing,” and that “they’ll have the benefit of maybe seeing agreements between ether Nevada, Delaware, and New Jersey, or a combination thereof.”

Instead of working towards a compromise of recently passed legislation in order to compact together, these three states may instead compete for partnerships with new markets, as other states move forward with Internet gaming legislation.

This could lead to multiple compacts, with groups of states who have passed similar legislation banding together to increase player pools.

Just which of the three models will prove to be the most popular with state governments will likely determine how the market develops across the nation.

But there are plenty of points from which to speculate.

Delaware

Delaware allowing the big gaming giants from NV and NJ to offer games to it’s residents, in direct competition to their lottery product, seems highly unlikely. Had they been interested in such an open market, they probably would have started out that way. Competition would surely hurt their lottery revenue.

But with eleven states having lottery but no commercial or tribal gaming, we could see those states follow DE’s lead and adopt the lottery model, and then compact with Delaware and operate on a common platform.

New Jersey

New Jersey went forward with Internet gaming specifically to revive Atlantic City and, being the only one of the three in what I refer to as ‘Grove’s Eleven,’ likely has the population to sustain intrastate games. This puts them, among the three, in the best bargaining position from which to negotiate interstate compacts.

It is unlikely they would see the need to compromise any of the principles in their legislation to partner Nevada and/or Delaware. They may instead, as Pappas suggests, “first seek agreements with non-traditional gaming states using their population and full suite of gaming (not just poker) as the incentive for those states to enter into agreements.”

Nevada

Nevada is by far being the most vocal about interstate compacts. It is a given that the population of NV alone will not sustain Internet poker, thus making compacting essential to success. While operators licensed in both NV and NJ would like to pool those players, differences between NV and NJ law will impede a grand bargain, and NV does not appear interested in expanding it’s Internet offerings to match the full suite of games offered in NJ.

It’s been suggested that some states may simply amend their laws to allow their residents to play on Nevada sites, thus making a far reaching compact unnecessary, and leaving all the regulatory issues to the Silver State, while simply collecting a new revenue stream. NV’s ‘poker only’ approach may be an easier sell in state legislatures concerned about Internet gaming.

Until we see more states move forward with igaming legislation, we can only speculate on how the US market will take shape.

But with the industry, and state governments, recognizing player liquidity as essential to their success, we may even see stepped up state level lobbying efforts from big casino interests, and perhaps from the gambling commissions of DE/NE/NJ, as they seek partnerships for their particular model.